Rate hike likely to up rental prices

The repo rate hike would probably increase the price of residential rentals and could effect the Consumer Price Index (CPI), FNB’s home loans department said on Thursday.

Property strategist John Loos said in a statement that the SA Reserve Bank’s decision to increase the repo rate to 5.5 percent would likely create greater demand for property rentals.

This was because people looking to buy property for the first time could delay purchasing until the interest rate hiking cycle appeared to be past.

In addition, more people were likely to sell their homes in order to downscale due to financial pressure. In both scenarios, people would be more likely to rent accommodation.

“This all leads to one likelihood… stronger growth in demand for rental properties,” Loos said.

The interest rate hike would likely further reduce the number of people buying property in order to rent it out, leading to slower growth in supply of rental properties.

According to the FNB estate agent survey, those buying properties in order to let, accounted for around eight percent of total home buying, down from a quarter of the total buying market in the 2004 survey.

“The combination is likely to see higher rental inflation, just as we saw the last time interest rates peaked around 2008.”

The year-on-year inflation rate, as measured by the CPI for all urban areas, measured 5.3 percent and 5.4 percent in November and December last year. This resulted in an average annual inflation rate of 5.7 percent in 2013.

She said that the global financial crisis had moved into a new phase which was posing challenges to emerging market economies, including South Africa.